Rare Trading Setups Suggest Major Currency Moves in October

The AUDJPY is displaying the same pattern, potential head and shoulders tops, at 4 degrees of trend. Is the proliferation of these patterns a harbinger of things to come with respect to risk trends and volatility? Combined with a rare NZDUSD setup, October is shaping up to be an exciting month.

Australian Dollar / Japanese Yen

Daily

Prepared by Jamie Saettele, CMT

The AUDJPY is displaying the same pattern, potential head and shoulders tops, at 4 degrees of trend. The largest degree pattern spans over 2 years (left shoulder April 2010), the next degree down spans over 1 year (left shoulder October 2011), the next degree spans almost 3 months (left shoulder July 5th) and the smallest degree pattern spans 16 days (left shoulder September). Is the proliferation of these topping patterns a harbinger of things to come with respect to risk trends and volatility? If so, then we are in for an exciting October. A break below 7950 is needed to confirm the 2 smaller degree patterns. Focus would immediately shift to 7768/93.

The Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) has held the ‘week of the Fed’ low for 2 weeks now. It seems that the week that ended 9/14 (Fed week) was exhaustive in nature but that doesn’t mean that the decline from 10323 is over. It’s too early to know. Working on near term developments, Friday’s outside day serves as an important reference point for the next move. Look towards 9930/63 (9/10 high, 8/23 low and 38.2% retracement of the decline from 10323) as long as price is above Friday’s low. I expect a reaction within that zone if reached. Expect support early next week under 9850.

Euro / US Dollar

Weekly

Prepared by Jamie Saettele, CMT

The EURUSD range was only 1.25% this week, which was almost entirely on Friday (Friday ‘shared’ price action with every other day this week). The late week sell off brings the 12740/50 level back into focus. As focused on throughout the week, this level is defined by the 38/2% retracement of the rally from 12042, June high, and 9/10 low. I expect support at the level. Early week resistance is 12890/12910. I favor selling early week strength, probably Monday morning. As always, updated will posted on Twitter @JamieSaettele.

British Pound / US Dollar

Weekly

Prepared by Jamie Saettele, CMT

I’ve focused on the importance of 16300, the 2010 high and April 2012 high, in recent weeks and it’s clear that the level remains important. Today’s (Friday’s) bar constitutes a large range bar (JS Thrust bar), which is useful as a tool in identifying important reference points. The last JS Thrust bar occurred on 7/26; that low was never broken and the market broke to higher levels. It’s possible that today’s bar provides the same reference point for going short. Early week resistance is 16180-16225. A drop probably doesn’t reach strong support until 15910 (38.2% retracement and 8/23 high).

Australian Dollar / US Dollar

Daily

Prepared by Jamie Saettele, CMT

I wrote last week that “the change to the momentum profile decreases confidence in the immediate bullish potential and is suggestive of more sideways action at best. Bullish risk on longs should be kept the Thursday low as a drop below probably wouldn’t encounter support until 10287-10323.” The AUDUSD didn’t do much of anything this week, trading in just a 1.4% range. With the NZDUSD reversal today however, it’s worth pointing out that the AUDUSD has lagged significantly and that divergence between the 2 currencies (new high in NZDUSD and not in AUDUSD) is often present at significant turning points. With this in mind, focus is on the short side towards more aggressive targets, notably 9968/90 (major Fibonacci confluence and 6/25 low). 10407/30 is early week resistance.

New Zealand Dollar / US Dollar

Daily

Prepared by Jamie Saettele, CMT

There is no need to complicate matters, the NZDUSD traded to its highest level since March 2 and reversed sharply. The reversal occurred pips from the close of the day that produces the high so far for 2012 (2/29/12 at 8341…today’s high was 8356). A key reversal with several volatility conditions attached, JSpike, occurred today as well. These tend to mark significant turns. The divergence exhibited with the AUDUSD is another reason to be bearish (see AUDUSD commentary). I’d not be surprised to see the NZDUSD fall more than the AUDUSD next week as happened in early March at the last important top (NZDUSD tends to move quickly at turns). Initial support next week is 8133 but 8010/30 is probably stronger.

US Dollar / Japanese Yen

Daily

Prepared by Jamie Saettele, CMT

I mentioned via Twitter today that the Japanese Yen is bipolar. I honestly believe that. After looking for continuation of strength all week, the USDJPY traded lower in the most annoying way possible (very slowly) only to take out the previous 3 days’ highs and come close to the Monday high. Still, today’s range doesn’t even qualify as a large range (JS Thrust) day. I see no objective point of reference from which to structure a trade at the moment.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.